Small businesses in Texas can shop for their own electricity supplier, but the plans, rate structures, and contract terms differ enough from residential service that treating them the same is a costly mistake. This guide explains how small business electricity plans work, where rates currently stand, what demand charges are and when they apply, and how to compare offers without getting burned by fine print.
How the Texas Deregulated Market Works for Small Businesses
Texas deregulated its retail electricity market under Senate Bill 7 in 1999, giving both households and businesses the right to choose a Retail Electric Provider (REP) separate from their local utility. The Public Utility Commission of Texas (PUCT) licenses REPs and publishes a list of certified providers at powertochoose.org, though that site is designed primarily for residential shoppers.
For small commercial accounts, the same basic structure applies. A local transmission and distribution utility (TDU), such as Oncor, CenterPoint, AEP Texas, or TNMP, still delivers the electricity over its wires. The REP buys power on the ERCOT wholesale market and resells it to the business at a retail rate. The business pays the REP one bill that bundles both the TDU delivery charge and the energy supply charge.
The critical difference is account classification. Utilities and REPs define "small commercial" by monthly peak demand, typically anything under 50 kilowatts (kW) of peak demand. Some REPs draw the line at 25 kW. A business above those thresholds moves into medium or large commercial territory, which involves a separate quoting process, different tariff structures, and almost always a negotiated contract rather than a posted rate.
Commercial vs. Residential Electricity Rates in Texas
The U.S. Energy Information Administration (EIA) publishes average retail electricity prices by sector. As of early 2025, the Texas average for commercial customers runs approximately 9.5 to 10.5 cents per kWh, compared to roughly 12 to 13 cents per kWh for residential customers (EIA, Electric Power Monthly, 2025).
Commercial rates are lower for two main reasons. First, businesses typically use more electricity per billing cycle, which reduces the fixed cost per kWh. Second, many commercial accounts have flatter, more predictable load profiles than households, which makes them easier for suppliers to hedge on the wholesale market.
That said, posted residential rates are often quoted at a specific usage tier (commonly 1,000 kWh per month), which can make them look artificially low. A small business paying 9.8 cents per kWh on a flat commercial rate may actually be getting a straightforward deal compared to a residential plan with tiered pricing, bill credits that disappear at certain usage levels, or time-of-use premiums.
The takeaway: do not assume the residential rate you see advertised is better than a commercial offer. Always calculate total monthly cost based on your actual usage pattern.
What Is a Demand Charge and Does It Apply to Your Business?
Demand charges are one of the most misunderstood elements of business electricity rates in Texas. A demand charge bills the customer based on the highest rate of power consumption recorded during any short interval (usually 15 minutes) in the billing period, measured in kilowatts. The charge is expressed as a dollar amount per kW of peak demand.
For example, a business that hits a peak of 22 kW for 15 minutes on one afternoon in July, even if it uses modest electricity the rest of the month, could pay a demand charge of 22 kW multiplied by whatever rate applies, sometimes $8 to $15 per kW depending on the TDU tariff and the REP's markup.
The important distinction for small businesses is this: demand charges on the TDU delivery portion of the bill are set by tariff and passed through regardless of which REP the business chooses. Some REPs also layer their own demand-based charges on top. When comparing plans, confirm whether the quoted rate is energy-only (cents per kWh) or whether it includes a separate demand component.
Businesses that run equipment with high startup draws, such as commercial HVAC systems, compressors, or commercial kitchen equipment, are most exposed to demand charges. If a business's peak demand stays consistently below 10 kW, demand charges are often a minor factor. If peak demand regularly exceeds 20 to 30 kW, they become a material cost that deserves attention before signing any contract.
How to Shop for Small Business Electricity in Texas
The PUCT-authorized site powertochoose.org includes a commercial filter, but the inventory of small business offers is thinner than the residential side. A more complete approach involves three steps.
Step 1: Pull 12 months of usage data. Log in to your TDU's customer portal (Oncor SmartMeter Texas, CenterPoint My Account, etc.) and download interval usage data if available, or at minimum monthly kWh consumption and peak demand readings. This is the single most important input for an accurate rate comparison.
Step 2: Contact REPs directly. Providers such as Reliant, TXU Energy, Constellation, Cirro Energy, and Discount Power all serve small commercial accounts in Texas. Request a fixed-rate quote with the full rate sheet, including all pass-through charges, TDU delivery fees, and any monthly service or administrative fees. Ask specifically whether a demand charge applies and at what threshold.
Step 3: Build a simple cost model. Take each quoted rate structure and apply it to your actual 12-month usage history. Include the average monthly TDU delivery charge, which will not change between suppliers and can be found on your current bill. The supplier with the lowest advertised energy rate is not always the lowest total cost once all fees are included.
Contract Terms Small Businesses Should Read Carefully
Small business electricity contracts in Texas are not subject to the same consumer protections that govern residential plans. Residential customers have a right to a Electricity Facts Label (EFL) in a standardized format, required by PUCT rules. Small commercial customers receive a similar document, but the format is less strictly regulated, and the cancellation terms can be substantially harsher.
Key clauses to review before signing:
Early termination fees. Commercial early termination fees can run into hundreds or thousands of dollars, especially on contracts of two years or longer. Confirm the exact fee structure, not just a per-month estimate.
Auto-renewal provisions. Many commercial contracts automatically renew for a full term if the customer does not provide written notice 30 to 90 days before expiration. Set a calendar reminder well before the contract end date.
Index or variable pricing. Some small business offers are indexed to the ERCOT wholesale spot price rather than fixed. These can be economical in low-price environments but carry real exposure during peak demand periods. February 2021's Winter Storm Uri is the clearest example of what indexed pricing can cost when ERCOT wholesale prices spike (ERCOT After-Action Report, 2021).
Switching timeline. Switching REPs for a commercial account typically takes one to two billing cycles. Do not wait until the last week of a contract to initiate a switch.
When Not to Switch
Switching REPs is not always the right move. If a business is currently on a fixed-rate contract with more than three months remaining, the early termination fee will often exceed any savings from a lower rate. If ERCOT wholesale forward prices are elevated, locking in a new long-term fixed rate may not be advantageous compared to riding out a shorter-term contract and re-evaluating later.
Businesses that have very low monthly usage, under roughly 500 kWh per month, may find that fixed monthly fees make the effective rate higher on a competitive commercial plan than staying with the default service option available through the local TDU, where one exists.
The Bottom Line
Small business electricity plans in Texas offer genuine opportunities to reduce operating costs, but the savings depend on understanding the rate structure, knowing your usage profile, and reading contract terms before signing. The businesses that get the best outcomes are the ones that treat electricity procurement as a recurring operational task, not a one-time decision. Review contracts at least once per year, compare at least three offers before renewing, and pay close attention to demand charges if peak consumption is a factor in the business's operations.